South Florida’s office investment sales have increased over the past year, though challenges such as distress and discounted transactions remain due to high interest rates and other economic pressures.
According to CBRE data, investment sales volume in the tri-county region reached nearly $2.2 billion in the 12 months ending September 30, representing a 28 percent rise from the previous year. This is almost double the $1.1 billion recorded during the same period ending September 30, 2023, which marked a five-year low for investment sales. However, this recent activity still falls short of levels seen during the pandemic-era boom; in the year ending September 30, 2021, South Florida saw $3.9 billion in deals.
“It’s definitely gotten better than it was two years ago. It will come back like a Phoenix,” said broker C. Todd Everett of Lee & Associates. There’s “starting to be an appetite for office.”
Financing options are slowly returning after a period when higher interest rates made lending scarce. Commercial mortgage-backed securities and debt funds have resumed office lending activities, while life insurance companies and pension funds are also gradually re-entering the market. Banks remain cautious lenders for office properties.
“The big banks are willing to selectively do high-quality office properties, and the local and regional banks are now making some office loans, and it’s very borrower specific,” said Chris Lee of CBRE. “They might want to see deposits increased by the borrower, and some recourse worked in.”
Lee noted that loan spreads have decreased but loan-to-value ratios have only slightly changed.
Several notable all-cash deals occurred this year. Spanish billionaire Amancio Ortega purchased Miami’s Sabadell Financial Center for $274.4 million last month without financing—an approach that often allows buyers to negotiate better prices due to sellers’ preference for certainty.
Despite signs of recovery, distress continues in parts of South Florida’s office market. R&B Realty lost its Gateway at Wynwood building through foreclosure after completing it in 2021.
Other owners managed to avoid foreclosure auctions by selling their assets instead. For example, Coral Gables’ Columbus Center was sold for $76 million after its previous owner faced foreclosure on a $71.6 million loan.
Discounted sales were also recorded: Foundry Commercial sold Sawgrass Lake Center at a price about 36 percent lower than its purchase price seven years earlier; Rockpoint and partners sold One Clearlake tower at nearly 26 percent below what they paid four years ago.
Broker Douglas K. Mandel of Marcus & Millichap explained that many current transactions are driven by looming debt maturities: “The trades you are seeing in the market are largely due to debt maturities,” he said. “If you put floating-rate debt on loans [issued] in 2022, I think you are in a bad situation… They are kind of forced to make a decision, whether they put new equity into a deal or they sell it.” Mandel added that discounted sales do not necessarily indicate widespread distress but can offer investors opportunities to buy higher-quality buildings than usual.
Private investors and family offices have been active buyers during recent slowdowns as institutional investors avoided offices; however, institutions are now beginning to return cautiously.
The Federal Reserve raised interest rates aggressively throughout 2022 and 2023 before cutting them twice by 25 basis points this year—a move experts say has not significantly helped landlords with floating-rate debt or those seeking refinancing since long-term Treasury yields remain elevated.
As borrowing costs stay high but begin easing somewhat, prices remain below peak levels yet above last year’s lows.
“I don’t think we are going to see ‘21 prices soon,” Lee said. “But we are absolutely above ‘23 pricing.”
